-
Renaissance Macro’s Jeff DeGraaf predicts a ten% stock market drop amid three bearish aspects.
-
Tech stocks may underperform after rate cuts, impacting market stability, in keeping with DeGraaf.
-
“There’s still just a little longer fuse on this correction that is prone to happen before we’re done,” DeGraaf said.
A trifecta of bearish aspects could send stocks lower by about 10% inside the following few weeks, in keeping with Renaissance Macro Research founder and technical strategist Jeff DeGraaf.
In an interview with CNBC on Wednesday, DeGraaf said the Nasdaq 100 could trade to 17,000, a key technical level he’s monitoring which represents 10% downside from current levels.
For the S&P 500, DeGraaf is closely watching the early August low of 5,120 for a possible retest of support. That level represents about 7% downside from current levels.
DeGraaf is worried that sentiment stays in bullish territory, which is not typically seen when the market is at or near a bottom.
“Once we take a look at where the sentiment is when it comes to small speculators on the NDX futures, they’re still very very net long. In other words, they have been using this weakness as a buying opportunity. And that is not normally the correct behavior to create some sort of low,” DeGraaf said.
The S&P 500 is about 3% below its record high, while the Nasdaq 100 is down about 8%.
The bullish sentiment amongst traders can be contrasted by the indisputable fact that September has historically been a foul month for stocks.
Finally, DeGraaf said that technology stocks, which have been leading the market higher for the reason that bull market began in October 2022, typically underperform within the three months following the Federal Reserve’s first rate of interest cut.
“Once we look particularly at technology, it doesn’t fare well after the primary rate cut. It is very pro-cyclical, cyclicals are inclined to underperform for no less than three months after the primary Fed rate cut,” DeGraaf said.
“So though it looks like the calvary is on the best way and good things are prone to occur, the information probably continues to be weaker and I feel that is one in all the things that is sort of piling up on us here.”
As to how the decline plays out, DeGraaf said there might be further weakness toward the tip of September, spilling over into early October.
Such a decline would create a two-month window of stocks seeing little movement, which might “turn into pretty disheartening for people,” DeGraaf said.
One other potential decline could are available the shape of a fast flush of positioning amongst trend followers and “sheer panic” amongst investors, just like what happened in early August amid the yen carry trade blowup.
Until one in all those two things happens, DeGraaf sees short-term stock market risks skewed to the downside.
“Neither one in all those have we seen yet and that is why we predict there’s still just a little longer fuse on this correction that is prone to happen before we’re done,” DeGraaf said.
Read the unique article on Business Insider